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a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 8.8%. Now, with 7 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 14%. What is the price of the bond now? (Assume semiannual coupon payments.)
b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 86% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?
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Your firm has a $250,000 bond issue outstanding. These bonds have a 7% coupon, pay interest semi-annually, and have a current market price equal to 103% of face value. What is the amount of the annual interest tax shield given a tax rate of 35%?
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Which one of the following will tend to increase the length of time a company will extend credit?
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What is the Macaulay duration of a 7% coupon bond with five years to maturity and a current price of $1,025.30? What is the modified duration? (Assume semi-annual coupon payments unless it is explicitly stated to use annual coupon payments)
The balance sheet for Ferguson Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding. The company has declared a dividend of $1.30 per share. The stock goes ex dividend tomorrow. Ignoring any tax effects, what is the ..
Over the last four years, the common stock of Plymouth Shippers has had an arithmetic average return of 9.3 percent. Three of those four years produced returns of 14.1 percent, 15.6 percent, and 3.4 percent, respectively. What is the geometric averag..
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Compare the decision metrics NPV & IRR for the "no recovery of NWC" and "recovery of NWC" scenarios, stating which scenario best captures reality. Based on your answer, give the project a green or red light - calculate the K-wacc for HCA using..
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